Austerity

02/28/2013

The EU is a step closer to imposing bonus caps on bankers - a move many see as a way to calm public anger over hefty pay outs to big money earners being blamed for the financial mess plaguing most of Europe.

An agreement, reached late Wednesday in Brussles, means bankers could only receive bonuses worth two times their salaries.

Some say this is the toughest limit ever imposed. It applies to Europe-based employees of any bank, and, to staff of those banks wherever they are based - be it London, New York or Hong Kong.

In the words of London Mayor Boris Johnson, Reuters reports he said: "This is possible the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire."

Somebody has a long memory. Diocletian was a Roman emperor at the end of the 3rd Century.

And in Latvia, a country that saw its economy tank after one of its three big banks failed, British Prime Minister David Cameron who was visiting the country said they would carefully examine the legislation to make sure it can be "flexible enough to allow those banks to continue competing and succeeding in the U.K."

No doubt, if the legislation is passed by the EU's 27-member states, this will be more fodder for the anti-EU movement in Britain. Cameron has pledged to hold an "in or out" vote on staying in the EU if he wins the next election in 2015.

With files from Reuters

Tanya Talaga is the Star's Global Economics reporter. Follow her on Twitter @tanyatalaga

02/25/2013

A man photographs a burnt out
police car after riots on Tottenham High Road on Aug. 7, 2011 in London. (Dan Kitwood/Getty Images)

“People are happy when there are riots because at the time, at that
exact point, they are having their own way. They are voicing their
feelings to the establishment. They are taking it to the streets,” Clasford Stirling.

Britain is poorer now than it was five years
ago, as measured by gross domestic product, the total amount of goods
and services a country produces each year. The Star's Tanya Talaga recently went to Britain to survey the impact the austerity cuts are having on its people.

Q: You visited Broadwater Farm Estate, a social housing project in Tottenham, north London. What was it like being in Broadwater?

A: I
took the Underground to Broadwater Farm one evening after interviewing British
Labour MP David Lammy at Westminster.
I had tried to head up to Tottenham earlier that day, but my cab driver took me
in the wrong direction and I missed my set-up interviews, so I had to try again
at night.

The
Farm is a massive, social housing project, home to 4,000 people living in
low-rise and tower apartments built nearly 45 years ago. The place is like a
labrynith, built on a maze of streets and it is confusing to outsiders.

Lammy
gave me a specific set of instructions on how to get to Broadwater once in
Tottenham – which subway exits to take and what mini-cab stand to use as some
cabbies don’t know their way around the Farm, or, refused to go after dark.
The cab driver who picked me up told me that in his last four years of driving,
I was the first “white” woman he had taken to the Farm in the evening.

I
was struck by that comment and found it hard to believe. This is inner-city London. Could the divide
between the haves and the have-nots be that bad?

The
Farm was the flashpoint of two of the worst riots in London’s recent history. Perhaps that is why
there is a perception that this isn’t a safe place to be. But the community has
worked hard to turn around the Farm’s reputation and reduce crime in wake of
the 2011 riots, triggered after the
shooting death of Mark Duggan.

Q: How would
you describe the residents of Broadwater?

A: Inside
the Farm’s community centre, I was welcomed with open arms by soccer coach
Clasford Stirling, who appreciated I took the time to visit and check the place
out rather than doing a phone interview.

Inside
the gym, groups of 9 and 10-year-olds were busy running drills. Families waited
on the sidelines and it felt like I was back in Toronto, watching my own kids at soccer
practice. The place was packed with parents sitting on the sidelines.

It
struck me as a community like any other, full of parents struggling to meet
demands of the day, juggling kids, homework and everything else. The Farm
reminded me of social housing projects here in Toronto, just on a far larger scale.

Q: Can Britain be saved? How?

A: Britain is trying to
manoeuvre itself out of nearly three straight recessions, triggered after the
2008 global financial collapse. Like many western powers, I think they have
found themselves falling behind due to a lack of investments in possible growth
sectors of the economy coupled with being burdened by high social services
costs.

In
order for the economy to turn around, I think they need to get aggressive on
job creation and infrastructure spending and ease off on drastically reducing
transfer payments to local council governments. Spending on building roads,
bridges and other public works helped to insulate the Canadian economy from
some of the fallout after 2008. So did a strong hand from the Bank of Canada
with policies of low interest rates.

Will
incoming Bank of England
Governor Mark Carney make a difference? He could be a help, but it is going to
take a concerted effort by both Westminster
and Carney to turn the ship around.

Q: What do you see happening in the future?

A: If
the British government does not ease up on a series of deep funding cuts to
local governments combined with measures that tax the poor – such as the
bedroom tax for those living in social housing – there is a real recipe for
unrest in the coming months.

Youth
unemployment looms large in some areas, for instance in Tottenham it is 55 per
cent. In Liverpool it is more than 25 per cent
in some neighbourhoods.

Local
governments are being forced to shut down youth sports programs, women’s
shelters, libraries and other community services.

When
that happens, there's more harm than good results.

Tanya Talaga is the Star’s
Global Economics reporter. Follow her on Twitter @tanyatalaga

02/12/2013

The coast of Bermuda in the Southampton area is lined with chalky
cliffs. (Jim Byers/Toronto Star)

Offshore tax havens don't reveal who sends their cash over and how much - that's the point. They are secretive and above the law. But here's some data that illuminates how they work. The OECD just released a report on the issue today.

Barbados, the British Virgin Islands and Bermuda receive more direct foreign investment than economic powerhouses Germany or Japan. What this means is these tiny countries are where citizens and companies of major countries send their money to cut down their tax bills. The British Virgin Islands, Bermuda and the Bahamas are among the top five investors into Russia, the report said.

"Some macro data are quite meaningful: some very small jurisdictions are
in the top 10 investors in large countries," said Pascal
Saint-Amans, head of the tax centre at the Organization for Economic
and Cooperation Development in Paris, in an interview.

Saint-Amans and his team are now putting together an action plan and coming up with practical ways for G20 countries to clamp down on tax dodgers. G20 finance ministers will be discussing the problem this week at a meeting, he said.

Saint-Amans added that multinational companies should welcome an overhaul of the system because it is about protecting capitalism.

"It will also protect multinationals from uncertainty or double taxation, which
would have a negative impact on investment, and thus on growth and employment
globally."

Hamida Ghafour is a foreign affairs reporter at The Star. She has lived and worked in the Middle East and Asia for more than 10 years and is author of a book on Afghanistan. Follow her on Twitter @HamidaGhafour

But Angel Gurría, head of the Organization for Economic Cooperation and Development which has just released a report looking at corporate tax avoidance had this to say to The Guardian:

"Citizens are already losing faith in their banks and the financial
system. If big corporations fail to pay tax ... it will undermine democracy. This is about the
survival of democracy."

Hamida Ghafour is a foreign affairs reporter at The Star. She has lived and worked in the Middle East and Asia for more than 10 years and is author of a book on Afghanistan. Follow her on Twitter @HamidaGhafour

A masked demonstrator leaves a Starbucks coffee shop in central London in this December 2012 file photo. Big companies in Britain now pay less tax than they
did 12 years ago despite a big jump in profitability, a Reuters analysis of
official data shows. (Luke MacGregor/Reuters)

“Tax is the foundation
of good government and a key to the wealth and poverty of nations, yet
it is under attack,” John Christensen, an economist and director with the Tax Justice Network, a London-based activist group.

The world's wealthiest citizens and multinationals are dodging hefty tax bills by moving their money to offshore havens, critics charge. The Star's Hamida Ghafour recently travelled to Europe to report on the social impact.

Q: In your piece, you write “economists and businessmen say the root of the crisis is that the world’s wealthiest citizens and corporations refuse to pay their share of taxes by moving enormous sums to tax havens where there is little or no income tax.” Will this ever change?

A: The problem is we’re talking about huge amounts of money, hundreds of millions of dollars in profits and revenues. Every multinational worth its salt moves their money to offshore havens to minimize their tax bills. So there is a lot at stake. It is hard to see what motivation there is to change unless governments push through new laws. There is increasing pressure from the public in places like Britain and France because people are suffering from cuts to public welfare programs while the one per cent is perceived as greedy.

Remember Google chairman Eric Schmidt’s comment that he was “proud” of his company’s tax practices? The question is whether that political pressure will mean a change in the laws.

Q: Many people see “tax” as a bad word. Why is tax so crucial to good governance?

A: I became interested in this issue after living in the United Arab Emirates where there is no income tax. The rulers don’t need it – they are sitting on enormous amounts of cash because of oil. Abu Dhabi for example has a sovereign wealth fund worth an incredible $627 billion.The rulers can build schools, offer universal health care, even give free houses to their citizens without giving them the vote which would mean they have a say in how they are governed. Emirati citizens are generally happy with this paternalistic arrangement. I mean, the government will fund their entire university education, even if they want to study overseas.

But in Europe tax helps bind the social contract between citizens and their governments. In other words, people pay income taxes and vote for the government that decides how that money will be spent. But in Greece that agreement is breaking down. The Greek government does not have funds to pay for schoolbooks, for example, because it does not have enough revenues from taxes to pay for them and citizens are protesting in the streets because the perception is the government is not living up to its end of the bargain. The whole social contract in Europe is fraying.

Q: James Henry, former chief economist at consultancy firm McKinsey, says “approximately $12 trillion of unreported, private financial wealth from the developed world is held in about 80 tax havens” How can so much money be hidden without anyone noticing?

A: The problem is tax rules were written in the 1920s and these guidelines outdated. There are loopholes and gaps which the super rich and multinationals can exploit to their advantage. If you want to hide $30 million from the taxman you need a pretty good accountant to do this for you without anyone noticing. There has been an attempt to create a ‘blacklist’ of tax havens and impose sanctions against those countries which have them but it has gone nowhere – partly because the countries that would be punished are powerful such as Switzerland and America and have baulked at the suggestion of sanctions.

Q: As you mention in your piece, people tend to associate tax havens as “sunny islands such as the Bahamas, where yachts moor in crystal-blue harbours”. Is this a fair description?

A: The cliché is that tax havens are sunny places for shady people.It is also an outdated description. Many are in places like The Netherlands, Liberia, or Ireland or the United States so some prefer to call them ‘secrecy jurisdictions’. The state of Delaware, for example, is one of the biggest offshore havens in the world – it has 900,000 companies registered but there is hardly any information on who they are, what they do, who owns them and where the money comes from.

Q: What details surprised you about tax havens?

A: The mind-boggling numbers involved. James Henry from McKinsey told me that $12 billion of unreported wealth from Europe, America and Canada is being held in offshore havens. But when you take into account the Middle East, Asia and Africa the figure is closer to $32 billion. It has huge implications for development and aid. If the wealthy elite of those developing countries kept the money in their nations the revenue from interest that is taxed would help pay for a lot of wells, clinics and vaccination programs.

Q: Is the EU headed for a collapse?

A: No, I don’t think so. The European Union is still very wealthy and politically stable. There is inertia, for sure, as not many politicians seem to know how to cope with this problem. I am certain we will hear a lot about this issue in the coming year. Every week you hear about another company accused of dodging tax, Google, Starbucks, Barclays bank, the list goes on.

Q: What is the advantage to a country in having a tax haven if they don't get much money from the companies who register businesses there?

A: They hardly get any benefit from it. Places like the Cayman Islands, or Jersey in the UK suffer from what tax experts call the “financial curse.” A small minority of people, lawyers and accountants, benefit because they can make a lot of money. One economist told me they can also lobby the government on behalf of their clients to prevent anyone from getting access to information about their bank accounts. Having a tax haven in your midst also crowds out other economic sectors which makes the place increasingly dependent on tax haven activity in the same way that oil and gas economies end up being dependent on a very narrow sector. Saudi Arabia is the classic example of that.

Hamida Ghafour
is a foreign affairs reporter at The Star. She has lived and worked in
the Middle East and Asia for more than 10 years and is the author of a
book on Afghanistan. Follow her on Twitter @HamidaGhafour

Italy's former Prime minister Silvio Berlusconi delivers a speech during a rally of his
party "Popolo della liberta" (People of the Freedom - PDL) in Rome, on Feb. 7.(Andreas Solaro/AFP/Getty Images)

Will Italian voters return
former Prime Minister Silvio Berlusconi – one of Italy’s richest men and king
of the so-called bunga bunga – to office?

Italians go to the polls on
Feb. 24 and 25 in what is being billed as the anti-austerity general election.
Italy has been in a recession since 2011 and is expected to stay in it
throughout 2013.

Berlusconi, an enigmatic
speaker and media tycoon, is promising big tax breaks and jobs to Italians if
he is returned to office. The Italian unemployment rate is just above 11 per
cent but far worse for youth at nearly 36 per cent.

Nothing seems to keep
Berlusconi, 76, down. The centre-right politician governed Italy until 2011 but
he never left the spotlight. He's been embroiled in a myriad of legal cases and allegations of tax evasion.

The Italian courts have
recently put off Berlusconi’s trial for allegedly having sex with an underage dancer, until after the election. Berlusconi's political accomplishments have been overshadowed, for years, due to his notorious so-called bunga-bunga sex parties.

The latest poll conducted
for the Corriere della Sera newspaper by ISPO indicates the race is getting
close – Pierluigi’s party has 37.2 per cent support compared to Berlusconi’s
29.7 per cent.

“I have nothing to ask for
myself. I want to fight one last great electoral and political battle,"
Berlusconi said.

With files from Reuters

Tanya Talaga is the Star’s
Global Economics reporter. Follow her on Twitter @tanyatalaga

The OECD released a report this morning calling for an overhaul of the rules of global finance. It says multinationals that move vast profits to offshore havens are harming the
economies of the rich world because they do not pay their fair share of
taxes.

John Christensen, a British economist at the Tax Justice Network welcomed the report when I reached him in London. He called the practice a "major threat to national tax sovereignty and democracy."

"The associated problem of profits shifting to tax havens has worsened in the past two decades and is seriously undermining public finances throughout the world. The OECD has an almost unprecedented opportunity to tackle these problems, but it must avoid quick-fix solutions."

Hamida Ghafour is a foreign affairs reporter at The Star. She has lived and worked in the Middle East and Asia for more than 10 years and is the author of a book on Afghanistan. Follow her on Twitter @HamidaGhafour

02/11/2013

Bill Gates, chairman of Microsoft, during an interview Jan. 30 in New York on the day he launches his "annual letter" from the
Bill and Melinda Gates Foundation. (AFP PHOTO/Stan HONDA/Getty
Images)

In his fifth annual letter, Bill Gates argues the core reason for progress is commitment to setting goals and identifying the right measures to drive progress toward those.

He highlighted successes, including pre-natal healthcare in Ethiopia where clear goals led to success.

“In previous annual letters, I've focused a lot on the power of innovation to reduce hunger, poverty, and disease,” he wrote in the letter. “But any innovation-whether it's a new vaccine or an improved seed-can't have an impact unless it reaches the people who will benefit from it. That's why in this year's letter I discuss how innovations in measurement are critical to finding new, effective ways to deliver these tools and services to the clinics, family farms, and classrooms that need them.”

Embedded with photos, graphs and videos, the letter talked extensively about how measurement matters.

﻿On his first visit to that country in March 2012, Gates said he realized the challenge posed to health workers because rural areas are connected by rough roads. He saw few vehicles, even fewer bicycles.

Ethiopia found a successful model for achieving the goal from the southern Indian state of Kerala, which did it partly through the vast network of community health care posts. The workers provide most services by post but also visit homes of pregnant women.

“They ensure that each home has access to a bed net to protect the family from malaria, a pit toilet...”

Gates admitted that measurement is critical to progress in global health, it is tough to do well. “You have to measure accurately, as well as create an environment where problems can be discussed openly so you can effectively evaluate what's working and what's not.”

He said setting targets for immunization and other interventions do motivate health workers but it has a flip side: it can also encourage over-reporting to avoid problems with supervisors.

But innovative technology is still vital for improving measurement systems, said the Microsoft founder.

Gates has released a letter every year since 2009 covering all the action the Gates Foundation has taken and what it sees as the way forward in its quest to improve the health and lives of people in the developing world.

Raveena Aulakhis
the Toronto Star’s environment reporter. She is intrigued by climate
change and its impact, now and long-term. Follow her on Twitter@raveenaaulakh

02/08/2013

A sign with a caricature of Slovenia's Prime Minister Janez
Jansa is seen during an anti-austerity and anti-corruption protest in Ljubljana Feb. 8. Some 20,000 Slovenians took to the streets on Friday, adding
pressure on a crumbling conservative government that is struggling to stay in
power and avoid a bailout. Jansa is clinging to power despite the departure of
two junior coalition partners which deprived him of a majority and which may
force early elections in the troubled eurozone member. (Srdjan Zivulovic/Reuters)

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